Problem Set 3 to be submitted online by 11:59 p.m. Friday, June 15th Background

Question

Problem Set 3 to be submitted online by 11:59 p.m. Friday, June 15th Background information for Q1: A local football team is playing in a rather old stadium whose deferred maintenance costs result in its currently making zero economic profit despite having monopoly power in town It is considering moving into a new venue and has estimated its TC function should it do so to be TC-100 2 Q TC--S Q.. ? of tickets where the $100 in total fixed costs represent those associated with financing and maintaining the new venue. If it does move into the new venue, it would thus have a MC of production equal to MC-2 MC $/ticket It has estimated its demand for tickets in the new venue to be: OP 20-P $/ ticket # of tickets D Question 1 2 pts Q1-0 Assume the football team would continue to maximize profit and charges a single price for tickets. This single price strategy would imply a MR schedule of: MR 20-2 Q $/ticket MR #Of tickets

Explanation / Answer

1. Option 3: will not, loss of 19
MC = dTC/dQ = 2
MR = 20 - 2*QD

MR = MC (Profit maximizing condition)
20 - 2*Q = 2
Q = 9
P = 20 - 9 = 11

TR= P*Q = 9*11 = 99
TC = 100 + 2*Q = 100 + 2*9 = 118

Profit = 118-99 = -19

2. Option 4: 40 - 2*P
Total demand will be sum of individual demand.

Total Demand = 20 - P + 20 - P = 40 - 2*P

3. Option 4:Will and each earn a profit of 31
MR = 20 - Q and MC = 2

MR = MC (profit maximizing condition)

20 - Q = 2
Q = 18

Plug Q = 18 to solve for P.
40 - 2*P = 18
2*P = 22
P = 11

TR = P*Q = 11*18 = 198

TC = 100 + 2*18 = 136

Profit = 198 - 136 = 62
(Profit will be split equally as $31)

4. Monopoly
Basically when two firms merge, they can be seen as a monopoly.

PS: According to Chegg rules, in the event of multiple sub-parts only first 4 are attempted.

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